Another week..but with volatility

Ok, it was another hectic week for me, once again this week threw up more reasons for me to quit my job however that is another story altogether.

Ok back to the stock markets. This week, I had a good friend who came to me asking for yield plays. He said he was looking for yields that were in excess of 10%. Now that is just mad. Where are you going to find sustainable yields of 10%? Most of the stocks have rallied so much, even the REITs no longer offer such yields. He mentioned that First Shipping Leasing Trust offered such a yield, but I need to remind all my readers that this is probably looking at the world through the rearview mirror. The yields cannot be sustained because FSLT will probably be raising money through rights or units creation to meet their debt obligations. That means that no new value is created while your current earnings will need to be divided by even more units.

Now lets look at yield plays. I am not criticizing people who are looking for yields, I know my Grandma loves yield. So if you are my grandma's age, please do look out for yields. As for those who are still young, pls pls pls never never never look for yields. IF a company starts to pay you good dividends compared to their stock price...that means they have stopped growing. That means capital appreciation is going to be mediocre. If you want to be defensive and not want to take risk, get out of the MARKET! Do not go for yields. If the market tanks, your yields are going to get higher because that stock price is dropping like a hot rock...

Look for sustainable businesses that has the vision to find other channels to grow! That is the best way to invest.

The market has shown a lot of weakness over the past week and I am pretty sure many technical chartists are going to come out over the next couple of weeks telling you how weak the market is going to be. I agree, it is probably not going to be strong, but I believe that this could be the buying opportunity for many investors that did not manage to get into the market to benefit from the recent rally. Look for cheap entries.

I know I will be. Stay tuned for more. But lets first hope I can get my pesky boss off my behind. I really have not had time to do as much research on my stocks as I would have liked. But I do see some interesting stocks...not going to say much now because I have not really found out enough.

Have a good week ahead..and remember...the market is just in a bad mood, but moods will change. Do not let the daily gyrations determine your long term vision.

Best,

SVI

Things are getting expensive

I have to say that it has been really a tiring week for me, all the strenuous activities which I had to go through prevented me to put in any postings. I would have liked to write more often but to be honest, there was also nothing much to write about. Basically, the market did not really move throughout the week and with the exception of a few stocks, the rest of the market remained status quo.



One observation I have made is that it is harder and harder to find value. Most of the stocks have rallied to great heights and valuations are looking stretched. Earnings are coming in slowly but nothing has really looked interesting so far. As a value investor, I am finding it harder and harder to find stocks that demonstrate value at these prices.

Was doing my screenings last evening and I was really not impressed with all the valuations that came out. I continue to be bullish on my previous calls, but I am not able to come out with any other ideas as of now because it is really looking a little expensive.

Will keep you guys posted!

SVI

I give you $0.36, you give me $0.44. Thats what Lion AsiaPac is....

First of all, before I start, I would like to say that I do not believe in giving exact numbers because I am not anal retentive. The numbers I get are from the latest quarterly financial statements and I like to round them off, so specifics are just not my cup of tea.

Okay, lets get back to this company. So what is the big deal about a company that has not done much over the past 3 years? It is exactly why I think there is something about it that is intriguing.

Lion Asiapac does not do much...basically they are engaged in the manufacturing of electronics and automotive components and limestone processing. Limestone is used as a catalyst in the process to extract iron from iron ore. Scrap metal processing is also a part of their business. Ha! That is a real mouthful! So it is really quite a bit...

I know...it confused me too. They are so diverse...Did I mention that they also held a 6% stake in a chinese automobile maker Anhui JiangHuai Automobile Ltd which is listed in Shanghai.

Now instead of talking about the business, lets talk about their investment. Currently, they are in the process of selling the stake and at current price this will net Lion Asiapac around Rmb 600 million. At current exchange rate it should net about S$129 million. The latest balance sheet shows the company holding S$69 million with S$20 million in liabilities. So netting off all the cash and liabilities, the company will hold S$178 million in cash.

Cash alone will account for $0.44 cents per share. That is value by my definition.

Oh yes, I need to talk about the risk in investing this company! The company is looking to buy Polaris Metals at an offer of A$0.70 per share, which will cost them S$115 million. This is a loss making company, however it is very important to note that mining companies are not profitable for years till they bring the mine online. Polaris is targeting 2011 to start producing iron ore.

This acquisition will be beneficial for LAP if they do not pay too much but it does look like this is unlikely because they seem to be pulled into the bidding war right now. If they should raise their bids to a level that is not realistic, jump ship!

But at this moment, acquisition or not acquisition, we should focus on the cash balance of the company. Remember, we have only valued the cash balance of the company, that means that we have not looked at the future possible earnings or the value of the rest of the company.

I know a good deal when I see one. I do not mind swapping $0.36 for $0.44.

Have a good week ahead!

Best,

SVI

Trumpy Dragon...Lets hope everything goes according to plan....$0.75

After a very hectic week, I really do not have the energy to go into too much detail. I have liked Trumpy as I love to call it for some time.

Why? I think that there is nothing better than vice to invest in. One of the core tenets of value investing is to find a business that you would start yourself if you had enough capital. So as a big fan of the vice business, I want to introduce to you my favorite....Alcohol.

Ok Trumpy has had a good run up and its up 170% for the year. Impressive? I think so too. Is it too high? I think that it may be pricing in some optimism. Do I like it? I LOVE IT!

Lets see. First of all, this is a Baijiu distiller, holding 6% of market share in Hebei which apparently houses China's most notorious alcoholics. Secondly, if you are an Emil Chau fan, you have to buy it, cos apparently he drinks it to sooth his throat.

Ok jokes aside. Many market watchers are attributing this move up in Trumpy to the acquisition of the 2 Dukang distilleries. They are definitely wrong on that. Trumpy currently trades at close to 20 times historical P/E. It is not expensive because its trading at a significant discount to all its Chinese listed peers. The average P/E for Chinese Distillers is current 36 times. So are we expensive? I think not...

Now lets move to the acquisitions...first the shocker, both distillers have gone through bankruptcy over the past 8 years. Both were poorly managed. So there you are...the key risk.
This is information that is not going to be revealed by analysts.

Now to the good part. This acquisition is going to more than double Trumpy's capacity. Both brands are very famous and it allows Trumpy to break into the rest of the chinese market. Currently, the full year revenue for Trumpy is RMB700 million. The largest listed Baijiu distiller is Sichuan Swellfun and it's revenue is RMB 1.5 billion. If Trumpy is able to generate more revenue from it's doubled up capacity....it will be comparable to Swellfun. How much do you think Trumpy is worth? If it is going to double its revenue, double their profits and trade at 30 odd times P/E?

The acquisition is at book value. All the listed distillers are trading at 3 to 4 times book value so this can be considered a bargain, but combining the 3 entities is going to be a real challenge to the management.

I guess I have given you a picture of how things can be great if everything goes according to plan. Of course the risks are also high.

Lastly....Baijiu is most popular liquor in China....so do you think vice is a good business?

All hail Trumpy! Cross our fingers and hope things work out.

Have a good weekend ahead!

Best,

SVI

Ziwo Holdings ($0.325) - Rubbing its way to the top

This is my first stock call and ironically, I am going to call for an ipo.

Honestly, it is against my principles to go for ipos but this is a company that has impressed me and caught my eye with its easy to understand business.

I have to admit that I have my reservations on new stock offerings because they tend to price at very high valuations and unrealistic premiums to that NTA. Bearing all this in mind, I will go on to say why I like this company.

Ziwo Holdings Ltd : is engaged in the research and development, manufacture and sale of SBR and other foamed materials (comprising foamed SBR, foamed EVA and high foamed PE), 30D terylene filament yarn, and sandwich mesh fabric, which are used mainly as raw material in the production of lifestyle consumer products, furniture upholstery and automobile interior lining.

In simpler words...it makes synthetic rubber.

Having so many uses for synthetic rubber, it does not take a genius to figure out that this is a very stable business.

Many people are under the impression that this is a fibre related stock like fibrechem and sinotech fibre but this is something very different. The revenue mix shows that the company derives 62% of its revenue from SBR Foam (synthetic rubber). The margins are expanding and currently stands at 40%. The company has expanded their margins for all their products over the past 4 years.

(Remember that we are basing all this on numbers that have been provided in the prospectus so lets hope the management is not lying)

The company registered a diluted EPS of 4.6 cents for FY2008. At ipo price, it is trading at 5.11 times, current price of 32.5 cents it is only 7 times historical. If that is still not impressive enough, the company grew their 1st quarter profit by more than 1oo% YOY. Assuming that it can grow even close to this amount, the forward earnings could be only 4 times. So we can possibly see much higher prices for this stock. A lot still depends on the sentiment right?

Grew its client base from 41 in 2005 to 439 in 2009. Impressive growth. Management targets to grow their production capacity by 2 times within the 2 years.

I do not like to do long analysis. Basically, the business is easy to understand, good track record, very low valuations, strong cash flow and zero gearing. Lots of opportunity to grow.

So it gets my thumbs up. Of course all caveats remain. The ipo rule......lets hope it does not haunt me.

Best,

SVI